On February 12, 2016, the Centers for Medicare & Medicaid Services (CMS) published its long-anticipated Final Rule implementing Section 6402(a) of the Patient Protection and Affordable Care Act (ACA) (section 1128J(d) of the Social Security Act (Act)). [1]  Section 1128J(d), entitled “Reporting and Returning of Overpayments,” requires healthcare providers and suppliers to report and return Medicare and Medicaid overpayments no later than 60 days after the overpayment was “identified” or the date a corresponding cost report is due.  See 42 U.S.C. § 1320a-7k(d).  Providers and suppliers who fail to comply with these requirements risk liability under the federal False Claims Act, administrative penalties under the Civil Monetary Penalties Law and exclusion from federal health programs.

The Final Rule and its regulatory preamble reflect CMS’s consideration of numerous stakeholder comments received since the proposed rule was published nearly four years ago, as noted in a previous update.  See 77 Fed. Reg. 9179 (Feb. 16, 2012).  In many ways, the Final Rule provides flexibility to healthcare providers in determining if they have been overpaid and how they go about returning overpayments to the Medicare program.  The Final Rule also clarifies several important and highly controversial aspects of the proposed rule, such as the length of the “look back” period for identification of overpayments and when an overpayment is “identified” for purposes of triggering the 60-day report and return requirement.  Highlights and features of the Final Rule include the following:

• The Final Rule applies only to Medicare Part A and Part B overpayments (and thus does not provide guidance on the obligation to report and return Medicare Part C or Part D overpayments or overpayments from state Medicaid programs).  CMS noted that Section 1128J(d), which applies to all Medicare and Medicaid overpayments, is self-executing in the absence of regulations and that separate rulemakings are necessary to address differences among the programs. [2]
• The Final rule adopts a “reasonable diligence” test in defining when a person is considered to have identified an overpayment: “A person has identified an overpayment when the person has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment.”  42 CFR 401.305(a)(2).  CMS explains that this standard allows for flexibility while addressing its concern that an actual knowledge standard could lead to the “ostrich defense” meaning, “if the [60-day] deadline never passes because the person avoids obtaining actual knowledge of the overpayment, then the enforcement provision is rendered toothless.” 
• CMS emphasizes that “reasonable diligence” includes proactive and broad-based compliance activities as well as investigations conducted in response to credible information of a potential overpayment.  In other words, a provider that only investigates reported overpayments is not assured that its efforts will be treated as reasonably diligent; proactive compliance activities that ensure the accuracy and appropriateness of Medicare claims will also be considered.  As CMS stated, “We believe that undertaking no or minimal compliance activities to monitor the accuracy and appropriateness of a provider or supplier’s Medicare claims would expose a provider or supplier to liability under the identified standard articulated in this rule based on the failure to exercise reasonable diligence if the provider or supplier received an overpayment.”
• CMS clarifies that the 60-day time period begins when either the reasonable diligence is completed or on the day that the person received credible information of a potential overpayment if the person failed to conduct reasonable diligence and the person in fact received an overpayment.  Thus, the failure to be reasonably diligent alone does not create liability under Section 1128J(d); there must also be an overpayment.
• In commentary to the Final Rule, CMS adopts a black-and-white end-date for what is considered a timely investigation of a suspected overpayment.  Specifically, CMS stated that “reasonable diligence” is demonstrated through the “timely, good faith investigation of credible information, which is at most 6 months from receipt of the credible information, except in extraordinary circumstances.”  This six-month standard should alleviate concerns that healthcare providers and suppliers must rush to conduct a hasty investigation of a suspected overpayment to avoid liability for a delayed overpayment report and return.  Extraordinary circumstances that may justify a longer period of investigation include unusually complex investigations, such as violations of the federal Stark Law, that are reported under CMS’s Self-Referral Disclosure Protocol. 
• The Final Rule clarifies that “identification” of an overpayment (which triggers the 60-day report and return obligation) does not occur until the overpayment has been quantified.  Providers and suppliers are permitted to use statistical extrapolation to quantify an overpayment so long as they explain how the extrapolated overpayment was calculated.
• The Final Rule establishes a six-year look-back period for overpayments, instead of the 10-year period in the Proposed Rule.  CMS explained that a six-year period is consistent with the most frequently used statute of limitation under the federal False Claims Act and the statute of limitation under the Civil Monetary Penalties Law and is also compatible with the medical record retention periods used by most Medicare Part A and Part B providers and suppliers.  The six year look-back period is two years longer than the Medicare claims reopening period for non-fraud (which is four years for “good cause”) and is twice as long as the three-year period used by Medicare and Medicaid Recovery Audit Contractors. 
• The 60-day period is tolled when a provider self-discloses overpayments to the government via either the HHS-OIG Self-Disclosure Protocol or the CMS Self-Referral Disclosure Protocol.  CMS will also suspend the deadline to return overpayments when a person has requested an Extended Repayment Schedule based on financial hardship.
• The Final Rule permits overpayments to be returned in a variety of ways, including claims adjustment, credit balance, self-reported refund process or “another reporting process set forth by the applicable Medicare contractor.”  For example, rather than sending a paper check with an overpayment reporting form, a provider could request a voluntary offset from the contractor.

The Final Rule takes effect on March 13, 2016.  Until that date, providers and suppliers confronted with potential Medicare overpayments may rely on their “good faith and reasonable interpretation” of Section 1128J of the Act.

Endnotes

[1] 81 Fed. Reg. 7654 (Feb. 12, 2016)

[2] CMS published rules for reporting and returning Medicare Part C and D overpayments in 2014.  79 Fed Reg. 29853 (May 23, 2014).

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